STRS Report on January 2010 board meeting

From STRS, January 15, 2010

This week, the State Teachers Retirement Board held its monthly meeting. Following the regularly scheduled meetings, a report titled "Board News" is posted on the STRS Ohio Web site, as well as mailed to a number of members and education organization representatives who have requested it. As a member of STRS Ohio with an e-mail address on file, you will also receive this report each month. The January report follows.

JANUARY BOARD NEWS

NEW MEMBER JOINS RETIREMENT BOARD Joining the State Teachers Retirement Board at its January meeting was Dr. Daniel J. Martin, who was recently appointed to the board by Treasurer of State Kevin L. Boyce. Martin is currently the president of Mount Vernon Nazarene University. Before assuming this position in 2007, he served as the vice president for University Advancement at Point Loma Nazarene University in San Diego, as well as in various positions with MidAmerica Nazarene University in Olathe, Kan. He holds two doctorate degrees in higher education from the University of Pennsylvania and The University of Kansas, as well as a law degree and a master's in business administration from The University of Kansas. His four-year term on the board will run through Jan. 7, 2014.

BOARD CONSIDERS CHANGE TO SERVICE CREDIT RULE FOR PARTIAL YEARS OF TEACHING Currently, STRS Ohio members who are employed on a full-time contract can receive a full year of service credit by (a) working 120 full-time contract days, or (b) completing two full-time quarters (applies to higher education faculty). As a result, about 6% of retirees each year elect to retire midyear. The Retirement Board is considering the elimination of the reference to 120 days in the service credit rule, as well as the option for a full year of credit to be granted for two full-time quarters, effective July 1, 2015. This proposed change requires members to work 180 days to receive a full year of credit. Tutors or substitutes, who are not under a full-time contract on the teacher salary schedule, do not qualify for the 120-day rule. The board will be asked to take action on the proposed rule change at its March 2010 meeting.

2009 MEMBER SURVEY RESULTS PRESENTED The membership surveys conducted in late 2009 show that most STRS Ohio members - active and retired - continue to have positive overall impressions of STRS Ohio. These positive impressions extend to member services, pension benefits, the Retirement Board and communications. However, as expected, there has been some slippage since last year among very favorable impressions, especially among actives, due primarily to economic issues and the proposed pension plan changes.

These results were contained in a presentation made to the Retirement Board by Dr. Marty Saperstein of the Columbus-based research firm, Saperstein Associates, during the board's January meeting. The annual telephone surveys were conducted by Saperstein Associates in late November and December, and involved 606 randomly selected participants (304 active members and 302 benefit recipients).

The survey results also showed the following:

- The collective work of the Retirement Board and staff has resulted in the majority of STRS Ohio members being not only aware, but also knowledgeable about the proposed pension benefit changes. This was especially evident among those closest to retirement (pre and post). The survey responses also show a growing need for pension benefit information among actives.

- Health care coverage remains a source of concern among active and retired members. Members want the board to continue to consider this as a top priority, along with maintaining pension benefits and improving investment returns.

- Half of the active members still expect to teach longer than they originally planned, but this year one of the primary reasons (in addition to the down economy) is the proposed pension plan changes.

- About one out of 20 retirees is struggling to make ends meet.

Additional details about the surveys will be included in the next edition of the STRS Ohio newsletters.

RETIREMENTS APPROVED The Retirement Board approved 35 active members and 26 inactive members for service retirement benefits.

OTHER STRS OHIO NEWS

RETIREMENT SYSTEMS STRESS VALUE OF DEFINED BENEFIT PLANS In the past few weeks, Ohio's major newspapers have written about Ohio's public pension plans and their future sustainability. Adding to the discussion have been several editorials, as well as "letters to the editor" - both pro and con - regarding the value and funding of the Defined Benefit Plans available to Ohio's public employees. Before these articles ran, STRS Ohio reiterated its commitment to the Defined Benefit Plan with its members through its Web site and e-mail news service. In addition, the executive directors of the five Ohio systems shared the following message with key legislators.

DEFINED BENEFIT PLANS ARE GOOD FOR THEIR MEMBERS AND GOOD FOR OHIO For many decades, the public employees of Ohio have been provided with dependable retirement income during economic ups and downs. Public employers have had the ability to recruit and retain workers and budget for a predictable contribution rate. The vast majority of these Ohioans' retirement security has been provided through the investment returns earned by Ohio's five public pension plans. The balance is provided by contributions from the members and their employers. At the conclusion of their public service careers, members receive a pension benefit that is paid in lieu of Social Security. Going forward, the public pension plans can continue to provide this valued financial security by making reasonable, measured changes.

The Defined Benefit Plans offered by OPERS, STRS Ohio, SERS, Highway Patrol Retirement System and Ohio Police & Fire have benefited Ohio's public employees, this state and all taxpayers.

- Defined Benefit Plans provide financial protection for both plan members and taxpayers. Members are provided a lifetime benefit they won't outlive - a problem now faced by so many whose savings or 401(k) plans have been depleted in this recession and now face the possibility of slipping into poverty in their "golden years," having to turn to taxpayer-funded public assistance, Medicaid or social services. The state is already struggling to budget the higher level of resources to cover the new people seeking assistance.

- Defined Benefit Plans are both efficient and economical. A 2008 National Institute on Retirement Security (NIRS) report found that a defined benefit pension can deliver the same retirement income at 46% lower costs than an individual defined contribution account due to pooling of investment risk, continual diversification of assets and professional investment management.

- Defined Benefit Plans provide a stable source of revenue for Ohio's local economies. According to NIRS, in 2006 nearly 360,000 residents of Ohio received a total of $8.41 billion in pension benefits from state and local pension plans, with $8.29 billion paid from plans within the state and the remainder originating from plans in other states.

- Defined Benefit Plans support Ohio workers. NIRS has also reported that retiree expenditures stemming from the pension plan payments in 2006 supported more than 79,000 Ohio jobs that paid $4.3 billion in wages and salaries.

- Defined Benefit Plans support the services provided by local, state and federal governments through the taxes paid on these pensions. In 2006, taxes paid by retirees and beneficiaries in Ohio directly out of pension payments, as well as taxes attributable to direct, indirect and induced expenditures, accounted for $702.5 million in state of Ohio and local tax revenue, according to NIRS.

- Defined Benefit Plans play a critical role in reducing the risk of poverty and hardship among older individuals. Defined benefit pension income saved taxpayers $7.3 billion in public assistance expenditures nationally in 2006 alone because retirees had a regular monthly pension payment that helped sustain them above the poverty level.

The public pension plans in Ohio have a history of remaining sustainable with reasonable, measured changes. Each system has taken the prudent and responsible step to present proposals that recognize the need to look at options, including adjusting benefits that acknowledge the fact that people are living longer. The legislative process is important to provide plan stability for the systems' members, local economies and all Ohioans.

The starting point for discussions must be the preservation of the Defined Benefit Plan offered by each system. These plans are major economic drivers for the state; are administratively efficient and economical; and provide a stable retirement income for public workers in Ohio, thereby reducing the burden on taxpayers and Social Security.

For further information about NIRS reports, visit http://www.nirsonline.org.

BOARD RETREAT DATES ANNOUNCED The Retirement Board will hold its annual retreat at STRS Ohio from Jan. 27-29. The meeting is open to the public.